Brussels, 12/10/2011 (Agence Europe) - Ten days ahead of the special eurozone summit on Sunday 23 October to deal with the financial crisis, the president of the European Commission, José Manuel Durão Barroso, set out a “roadmap for stability and growth” during an address on Wednesday 12 October at the European Parliament, a roadmap setting details that all need to be fully implemented immediately, he explained, to provide a comprehensive response to the sovreign debt crisis. The strategy takes a five-pronged approach - dealing decisively with the Greek problems, making the most of the EFSF bailout fund, recapitalising Europe's banks, stimulating economic growth and boosting economic governance.
For Greece, Barroso recommends that the next instalment of aid (€8bn) should be handed over now that the Commissiuon, ECB and IMF have published their report (see EUROPE 10471). He said a second bailout package was needed and should come from both the private and public sectors and be closely monitored.
As far as the Euroepan Commission is concerned, the EFSF should be expanded as planned by the eurozone summit on 21 July and therefore be able to buy up sovreign debt and provide loans to countries to bail out their banks. Barroso wants the EFSF to have greater lending capacity without needing extra funding or guarantees from the 17 eurozone countries. He said the new European Stability Mechanism (ESM) could be up and running a year earlier than planned, in the summer of 2012. The ESM will replace the EFSF and will allow the restructuring of a eurozone country's debt, in which the private sector would be involved. Barroso said that the changes to the EFSF were in everyone's interests, including the Slovaks (see separate article).
Bank recapitalisation. The Commission's document says that coordinated and targeted recapitalisation of Europe's banks is needed to restore confidence. Barroso said that whether one liked it or not, there was no denying that the sovereign debt crisis was affecting banks. The new strategy would cover all banks considered too-big-to-fail that have sat the European Banking Authority's stress tests; shedding light on banks' exposure to sovereign debt by cautiously putting a value on the bonds held in the banking and investment books; requiring banks to hold a much higher proportion of high quality funding; banks not holding the required capital would have to submit and apply a recapitalisation plan immediately and national supervisors would introduce new demands in the form of additioanl financial buffers and banning the payment of dividends to shareholders and bonuses to traders and managers; capital should be raised initially from the money marekts or, if that does not work, from public bailouts or the EFSF. The Commission suggests that the EU state aid rules should apply to banks from next year onwards. The Financial Times says the EBA is working on a 9% capital requirement for banks.
On the growth front, Barroso calls for the draft legislation to be passed to make better use of the Structural Funds and trade deals and for new legislation to be implemented (like the Services Directive and the internal market in energy rules). Next week, the European Commission will unveil a project bond plan to expand the investment base for the financing of big infrastructure projects in connection with the EIB.
On economic governance, the Commission suggests measures that outstrip the recent changes to the Stability and Growth Pact (see EUROPE 10466), wanting to put an end to the set-up whereby progress is decided by the slowest member state. He said the Commission would make several suggestions based on Article 136 of the EU Treaty to boost surveillance of countries receiving international financial aid and allow the Commission and Council of Ministers to intervene in countries' budget debates and demand amendments or a second reading. A process to give the eurozone more unified representation abroad will be mooted and the Commission will set out options later this year for the member states for the creation of eurobonds to pool a share of the debt of eurozone nations.
In a rare move, the main political parties at the European Palriament (EPP, S&D, ALDE and Greens/EFA) put aside ideological differences in a joint call to the European Commission and EU leaders to agree on a decisive and comprehensive plan to get on top of the financial crisis. They called for “an 8-point plan which includes, as a minimum, the following elements: a European plan for the recapitalisation of the banks that includes conditionality rules; bringing the EFSF (and future ESM) under the EU institutional framework; meaningful investment plan for growth and jobs, including use of project bonds; proposals to better coordinate and harmonise elements of national tax systems, especially to fight against fraud and evasion; stronger and more efficient mechanism for enforcing single market legislation; clear and coherent structure for economic government for the eurozone, based on the Community method; proposals to complete the overhaul of financial market regulation; a report on the setting up of a system of common issuance of European sovereign bonds.” (MB/transl.fl)